Here is a blast from October 2008 past: This chart as to who were the underwriters of the subprime loans.

Federal Reserve Board data show that:

-More than 84 percent of the subprime mortgages in 2006 were issued by private lending institutions.
-Private firms made nearly 83 percent of the subprime loans to low- and moderate-income borrowers that year.
-Only one of the top 25 subprime lenders in 2006 was directly subject to the housing law that’s being lambasted by conservative critics.

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

Excellent, BR. So, basically Wall Street ran out of ways to rob people (I mean make money) after the dot.com bubble so they simply created other ways, being the subprime securitization-pass-the-steaming bag ‘o turd game, which ultimately allowed a select few to rob the public blind and then turn around and force the very same public to bail out them and their firms while fobbing off the losses on all of us. And now we must all be “austeritized” due in part to those losses. Sheer diabolical psychopathic genius on their part on an epic scale. And, yet still, most of the public truly has no idea what and how this happened, so we can guarantee that they’ll rob us again in some other scheme until the people en masse are flat broke and have nothing left to lose by fighting back.

No beaufou, they would never have done that! after all they are upright, conservative business people, who would never ever have done any thing like set up huge bonus pools based on fake profits, or leveraged every dollar they had 40 – 1, nor would have they have skipped the steps needed to transfer the notes they sold just to cut costs, nor would they have needed a bail out after the mess hit the fan.

“I don’t understand the point of the graph depicting who has the largest sub-prime servicing portfolio. Servicing the loan does not mean you have any exposure to the performance of the underlying.

Posted by: JS at October 22, 2008 08:26 AM”

and this

“and (iv) the development of a completely non-transparent and unregulated over-the-counter credit default swap market. Most of this would have never been necessary if the government had not attempted to alter the mortgage market. It was over 20 years of government intervention weakening lending standards that led us the edge of the cliff. Now we seem to be arguing about who pushed who over.

If you want a name how about Charles Schumer whose attack against Indymac was the catalyst that precipitated the whole mess.

Or Barney Frank who still believes that the solution is to increase low income mortgages.”

I think the real government failure was the failure to regulate. Weren’t there already laws on the books that made down payment schemes illegal, mandated PMI for borrowers with less than 20% equity, and made it illegal to lie about income on a loan application or for an appraiser to be less than honest.

The common sense rules that already existed were thrown away because of greed and a misguided belief that the ability to borrow equates to affordability. The so called “democratization of credit.” No politician dared to do anything that stopped the deadest of deadbeats from getting a mortgage, or the greediest of the greedy from collecting a bonus.

Now the failure is to hold anyone’s feet to the fire. Apparently, in the United States of America, it’s heresy to suggest that anyone should have to live with the consequences of their own bad decision making.

Not only do they make money on these crappy loans which were bound to fail, they make money when they get bailed out, and they make even more money because interest rates are at ZERO, and they’re making even more money now.

Tarkus, you make a great point. Except that one side doesn’t have, or think they need, any facts.

That’s the problem with arguing with them. They hold on to their prejudice economics, because it rewards their belief system. At the heart of this is the belief that it’s blacks and or the poor, with their cheap housing that they could not afford, and were not qualified to own, that caused the problem. Not all right wingers, but many. If a man was raised by his father, who he loved and adored, to be a racist, he will not easily give that up.

The partisan split on the federal panel exploring the origins of the financial crisis may undermine the impact of its findings on the banks, bond-rating firms and regulators it investigated, legal scholars and former national commission members said.

Democrats and Republicans on the Financial Crisis Inquiry Commission, struggling for months to find consensus behind the scenes, haven’t even been able to agree on whether to include the phrases “Wall Street” and “shadow banking” in the final report. The report is now scheduled to be published in January and is likely to include dissents, FCIC members said yesterday.

The four Republicans on the 10-member panel made their views public in a nine-page document yesterday, saying they place much of the blame for the 2008 crisis on the government and mortgage firms Fannie Mae and Freddie Mac rather than banks.

Those are the opening three paragraphs. Most folks won’t read beyond that point, assuming they’ve got the general idea of the story. The Republicans name names. The Democrats sound like they’re hung up on semantics. Since Democrats have not come out punching on this story, it’s a very safe assumption they have a vested interest in letting the lie take hold.

Tarkus, you make a great point. Except that one side doesn’t have, or think they need, any facts.

————————————-

Frankly I think that would become obvious in a public debate. If one side runs instead of standing to defend their point of view, that pretty much says they are full of sh!t. The good part would be seeing that they are full of sh!t in the town square.

This is what I thought the investigative media was supposed to be doing. Point. Counter-point. Rebuttal. Feel free to use charts.

Then a non-partisan org could comb through the assertions and assign ratings on truthfulness or truthiness.

Since this is the Greatest since The Great D., I would think broadcasting such a debate would be a ratings winner and no-brainer.

“Between 2004 and 2006, when subprime lending was exploding, Fannie and Freddie went from holding a high of 48 percent of the subprime loans that were sold into the secondary market to holding about 24 percent, according to data from Inside Mortgage Finance, a specialty publication. ONE REASON IS THAT FANNIE AND FREDDIE WERE SUBJECT TO TOUGHER STANDARDS than many of the unregulated players in the private sector who weakened lending standards, most of whom have gone bankrupt or are now in deep trouble.”

Also wanted to mention (in general) that I’ve tried to reiterate the following point to RightWingers for the past coupla years:

“Fannie, the Federal National Mortgage Association, and Freddie, the Federal Home Loan Mortgage Corp., DON’T LEND MONEY, TO MINORITIES OR ANYONE ELSE, however. They purchase loans from the private lenders who actually underwrite the loans.”

This blows up the RightWing’s little pet theories about Fannie, Freddie, AND the CRA quite succinctly.

But it simply doesn’t register. Can’t let the facts get in the way of promulgating propaganda.

“Most of this would have never been necessary if the government had not attempted to alter the mortgage market. It was over 20 years of government intervention weakening lending standards that led us the edge of the cliff. Now we seem to be arguing about who pushed who over.”

Barry, are you calling this bullshit? Or are you saying it’s true and Wall Street should be ashamed of itself for falling for the easy money? How does that work?

Von Mises’ and the Austrians had this stuff locked down many many decades ago: government intervention in the markets via the FED and other avenues screws up the market. It seems that you know this and think that regulation is the counter move by government to fix their original screw up. Educate me. Where am I wrong? What am I, a non market savvy guy, missing?

Sarge, this is a “Corporate Democracy”, in that lobbyists influence the laws, if not outright make them.

So, like it or not, if you elect a Republican, ( and many Democrat’s ) you will get “de-regulation” and weakened laws over many years that will cause a problem. It’s really only YOU being vigilant about what these guys do, and protesting that makes the system sort-of work.

As Barry pointed out the other day again, achoing the main points of his book, it wasn’t an either/or situation. Everyone had a sizable hand in making this shit sandwich; Fannie/Freddie, Bush/Frank, Paulson, Private Bank, CDOs, Congress, regulators who rolled over, lobbyists who rolled them, Greenspan, predatory lenders, willing prey consumers, and on and on and on.

Trying to point out a single party implies your protecting additional blame being tagged to your own pet political meme.

Almost everybody purchase their house based on what they can afford in monthly payments. At the core of the housing bubble was a change in how large a principal could be served per $1000 monthly payment.

A number of things conspired to allow house prices to increase drastically in the 2002-07 period.

The first main driver was a sudden drop in interest rates, mainly precipitated by sustained low interest rates set by the Fed. Because of the incentive structure in our housing loans and sales businesses, people almost always purchase as expensive a house as they can afford the monthly payments on. When interest rates drastically drop, then the amount of principal people can afford (on the same monthly payment) goes drastically up, driving house size and prices up.

The second main driver was the lack of oversight and regulation leading to financial innovation of: a) funny mortgage products that allowed people to take on even larger principals with the same monthly payments (and get much bigger and more expensive houses than they could have gotten with a conventional mortgage), and b) funny mortgage backed investment products that were rated and sold as AAA although their actual quality was well below that.

The third main driver was the perverted incentive structure throughout the whole home sale and financing chain structure that allowed a huge number of middle men to make big (risk free) incomes on selling a house (loan), even though everybody knew the owner/loaner would end up defaulting unless double digit home value increases and low single digit interest rates continued forever.

The fourth and final main driver was a financial system with huge excesses of money in desperate search for higher yields and, therefore, willing to finance the ever-increasing mortgage debt at very low rates.

If any of these main drivers had been removed, the bubble would have been substantially lower or not have occurred at all. A number of other things added a little more to the bubble, but none had even close to the effects of each of the four above.

Are you positing some mythical “perfect market” 20 years ago? Thirty years ago? Tell me when you thought the mortgage market was perfect? Then tell me how government regulation made that market perfect – the trend has been towards deregulation for over 30 years. Is that what you consider messing with the market?

2. private sector foolishness is never unregulated – “underwrit[ing] loans on a safe and sound basis, [their] policies could still be considered unfair and deceptive practices” under G. L. c. 93A. (Freemont vs Mass) “fair practice” concept also part of Mass vs. Litton filing (settles with GS), Also, interagency Federal guidance published January 31, 2001, jointly by the Office of the Comptroller of the Currency (OCC), the Board of Governors of the Federal Reserve System, the FDIC, and the Office of Thrift Supervision, stated: “Loans to borrowers who do not demonstrate the capacity to repay the loan, as structured, from sources other than the collateral pledged are generally considered unsafe and unsound”

3. even private sect0r fools put money in a a banks -it is called laundering

rfullem; those banks mentioned in parenthesis are the banks that took over the non-bank lenders after these non-bank lenders had failed (because of their unregulated private sector foolishness). Furthermore, being regulated according to the law does not matter if you have a GOPster in charge of the white house who tell the regulators to not prevent the free market to do its “magic” thing.

To quote the name of the blog – isn’t the big picture here that public companies have a need to grow every year? Private companies don’t have that burden. If you don’t come up with new ways to make money, your option is to come up with new ways to take money. Is it evil of the banks to lobby for a bailout? What would you do if you were that far in? (I don’t believe in a bailout, as it is an overreach of my idea of government, but I’m just thinking here…)

The chart lists the top servicers. That is quite a different role than originator, underwriter or guarantor (which is what Fannie and Freddie were . . . they don’t service any loans). Now the servicers have huge conflicts of interest as documented Georgetown professor Adam Levitin, but that’s another story.

Out of the litany of causes of the crisis, I had completely dismissed the CRA as having any significance (even though I’m libertarian), until I met someone who was involved in securitizing mortgages and I was surprised how much he talked about the CRA. So, I no longer completely dismiss the notion, but it’s just one star in the constellation.

Yes, but would the market for sub-prime loan instruments have even existed if it hadn’t been for Fannie Mae and Freddie Mac (and the mortgage deduction and the CRA and free money from the Fed)? I mean, I agree that greedy, unscrupulous bankers are (ultimately) responsible for bringing on the credit crisis, but it seems to me they merely saw a market being made by the Federal government and figured out a way to make themselves filthy rich by exploiting it.

Luckey; subprime was a racket to make money on stupid and poor people in both ends of the chain, why do you think they would not have figured that racket out if F&F had not existed? The only thing that held it back for decades was that they could not find investors that would buy it at AAA rated prices. As soon as they found new ways of obfuscating what the sh!t really was (and therefore could sell it as AAA), it was pretty much a given that everything would be moved from the less profitable conforming loans to the more profitable sub-prime.

“I want to give you my verdict on CRA: NOT guilty,” said FDIC Chairman Sheila Bair, before the Consumer Federation of America, Bair said … she wanted to clear up the “myth” that the Community Reinvestment Act caused the financial crisis – and she set out to do so with vigor.

The Community Reinvestment Act – or CRA – is a federal law designed to encourage commercial banks and savings associations to meet the needs of borrowers in all segments of their communities, including low-income and moderate-income neighborhoods. It has largely been criticized by conservative members of the GOP as promoting predatory lending practices.

And “LET ME ASK YOU,” she proceeded. “WHERE IN THE CRA DOES IT SAY TO MAKE LOANS TO PEOPLE WHO CAN’T AFFORD TO REPAY? NOWHERE.” THE FACTS ARE SIMPLE, BAIR SAID. THE LENDING PRACTICES THAT ARE CAUSING PROBLEMS TODAY WERE DRIVEN BY A DESIRE FOR MORE MARKET SHARE AND REVENUE GROWTH, NOT BECAUSE THE GOVERNMENT ENCOURAGED CERTAIN LENDING PRACTICES.

[...] on talk radio, the financial crisis of 2007-2009 was brought to you by the private sector… The Big Picture – More than 84 percent of the subprime mortgages in 2006 were issued by private lending [...]

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Ritholtz has been observing capital markets with a critical eye for 20 years. With a background in math & sciences and a law school degree, he is not your typical Wall St. persona. He left Law for Finance, working as a trader, researcher and strategist before graduating to asset managementRead More...

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